Increasing prosperity in a fragmented world

04.06.2012 (All day)

Hong Kong, the USA and Switzerland are the most competitive economies, according to the 2012 World Competitiveness Yearbook (WCY). The WCY rankings measure how well countries manage their economic and human resources to increase their prosperity. The most competitive nations in Europe are Switzerland, Sweden and Germany. Luxembourg comes in 12th place amongst 59 economies, losing one spot compared to the previous year.

In this yearbook, 59 countries have been analysed by the IMD Business School in Switzerland. The analyses are based on four main categories: economic performance, government efficiency, business efficiency and infrastructure. The first category - economic performance - is the one where Luxembourg traditionally performs best. In 2012, the country gained three places, jumping to 6th, thanks to the sub-category International Investment. International Trade is another asset, important to a small, open economy relying on exports, and where Luxembourg remains in fourth position.

In the second pillar, called government efficiency Luxembourg lost one spot, moving down to 16th place. While it moved up the ranks in Public Finance, the situation worsened regarding Fiscal Policy and Business Legislation. This means that there is room for improvement with regard to firm creation and start-up procedures. In the third main category- business efficiency, Luxembourg lost 3 positions and went back to 12th place. While the country lost ground on categories such as Management Practices and Productivity & Efficiency, it leapt forward in the sub-category Labour Market.

Why? The main reasons are the availability of a skilled workforce and staff motivation. Last but not least, Luxembourg lost one place, going down to 23th in the Infrastructure category. According to the Luxembourg Chamber of Commerce it is a noteworthy paradox that decline has been observed in the area of Technological Infrastructure, where the government has heavily invested in past years.

Not afraid of challenges

On top of that, local executive leaders were asked to select five indicators from a list of 15, which they perceived to be the key factors that made their economy attractive. In Luxemburg, political stability and predictability come out on top, followed by a competitive tax regime, a skilled workforce, and an effective legal and business-friendly environment. Regarding challenges company managers and policy makers have to face, diversification of the economy, pension reform and the improvement of price competitiveness were all cited.

From a global perspective, Hong Kong came first, followed by the US and Switzerland. Despite all its setbacks, the US remains at the centre of world competitiveness because of its unique economic power, the dynamism of its companies and its capacity for innovation, the Yearbook states. The most competitive nations in Europe are Switzerland, Sweden and Germany, which have export-oriented manufacturing and fiscal discipline.

Meanwhile, Ireland and Italy look better equipped to bounce back than Spain, Portugal and Greece, which continue to scare investors. Emerging countries are not immune to turmoil elsewhere. China, India and Brazil have all slipped in the rankings, while Russia has moved up one place. All Asian economies aside from Hong Kong, Malaysia and Korea have declined. Latin America also had a tough year, with every nation falling except for Mexico.

The survey concludes that the recession has made the world economy more fragmented, meaning that economic nationalism is back and protectionism is tempting. CW